The Thomson test

A restructuring of debt by Paris-based media and electronics firm Thomson has provided an early test for the small bang protocol. The initial stages of the settlement process highlighted a number of outstanding issues, not least the treatment of index tranches. Joel Clark reports

Back in July, when European credit derivatives dealers were frantically educating the market about the complex framework they had devised to allow credit default swaps (CDSs) to be settled via auction following a restructuring, some participants took comfort in the comparative rarity of restructuring as a credit event. There hadn’t been one in Europe for many years, they reasoned, so the chance of actually having to use the new framework in the near future appeared remote.

Such complacency was